Not long ago, the Iowa insurance department put out a Bulletin that cautions advisors against “making statements that disparage other insurers or are derogatory to the financial condition of any insurer.”
That should be a heads up for any financial advisor, including those in the secondary market for life insurance.
The making of such remarks is an unfair or deceptive act or practice, Bulletin 09-04 warns.
Granted, the Bulletin focuses on carriers and producers licensed in the state of Iowa, and much of it addresses policy replacement activity. Still, advisors everywhere would benefit from a no-disparagement rule, as a matter of everyday business practice.
After all, news of rating downgrades, negative court decisions, carriers seeking funds from the Federal Troubled Assets Relief Program, and other worrisome carrier developments spreads in nanoseconds. Suddenly, advisors start checking around, trying to determine if they should work with products of the affected companies or not.
This happens in the secondary life market as well as primary.
Of course, checking up on carriers has a healthy side to it. Professionals want–and need–to know the status of the carriers they represent, interact with, and encounter. It’s due diligence, and customers deserve no less.
However, when the questioning turns to indiscrete bad-mouthing, without supporting facts and information, those “disparaging” words can do a lot of damage.
The words can sully the brand. They can spur advisors and consumers to pass on otherwise suitable transactions, thus impairing revenue growth. They can inject doubt and suspicion that hampers relationships with vendors, the public, and more. Can lawsuits be far behind?
In the settlement arena, the bad-mouthing can lead to situations where advisors suddenly find they have trouble finding a buyer for a policy issued by one of the disparaged companies.
Meanwhile, customers who have such policies might suddenly decide, to try to settle those policies rather than “risk” holding them any longer. This could happen especially among consumers who do not know about or understand the protections of state guaranty funds.
True enough, settlement firms always welcome a chance to look at policies for potential settlement. But should there be a large influx of life policies issued by companies rumored to be “in trouble,” things won’t look so rosy–because willing buyers may be hard to find, as noted above.
Like it or not, the primary and secondary markets in life insurance are linked, even if they meet different consumer needs. What happens in one is bound to impact what happens in the other.
So, a warning to the primary market by one state insurance regulator should be taken under advisement by professionals on both sides of the fence and in all states. The fact that many primary market producers also do settlement cases from time to time makes this all the more important. So does the fact that regulatory ideas spread from state to state.
In short, in any economic climate and especially in rocky ones like today’s, due diligence is the smart thing to do. But indiscriminate bad-mouthing is not, no matter how turbulent the conditions.
See Iowa Bulletin 09-04 here
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–Linda Koco, Managing Editor, e-Publications
National Underwriter Life & Health